Rating Agencies, Whispers, Analysts, and more

I’ve never necessarily been the biggest fan of stock ratings. In college it was suggested that a lot of companies that have analysts rating a stock also have brokerage arms that try and sell that stock to customers. That in and of itself isn’t the worst thing in the world because after-all, the brokers could simply rely on the analysts for buy or sell signals. There is a slight problem in that a stock will move on information and to the extent a broker has the information of a stock rating changing before the rest of the world, there could be some less than ethical dealings. The bigger problem lies with the potential for abuse on the investment side of things. This is the placement of bonds, IPO’s, secondary offerings, financial advise, M&A, etc. These same companies also have arms that deal with those types of relationships. Imagine trying to pitch your company’s Bond Placement credentials when your own analyst has a Sell rating on the company you are pitching to. This wouldn’t exactly ring out as something the potential buyers of the bond would want to see, nor would it put your best foot forward when pitching the business.

In the 90’s when I was in college we reviewed multiple stocks where these types of services overlapped and rarely found any “Sell” rating. The professor essentially pointed out that the ratings would have to be renamed in that a “Hold” would now be a strong sell and a “Strong Buy” would now be a do some additional research for a potential buy. If you saw any overlapping services you might want to evaluate the stock a little differently.

He was simply stating not to rely on analyst ratings as they were not really made for the consumer like us, but rather a marketing type of after-thought and we should really evaluate stocks ourselves to decide the right course of action.

This brings me to a couple of articles I saw today. This is now 15+ years after those classes and I am still seeing this type of activity. The activity however has expanded to “special” sites that offer insight into what a stock will do. I’ve always taken these with a grain of salt. Here is an example of what I am talking about.

The stock AMAG – a pharmaceutical company had its stock price go down substantially on Nov. 3, 2015. The information up to that point was buy buy buy. There was even an article about “Whispers” that the company was going to release earnings higher than analyst expectations. This article noted the historical beatings of earnings and the like and was published a few hours before the stock opened and the earnings were actually released. A similar article was published the night before with a similar story. I also looked at the “News” or “Information” articles from a couple days prior and all had buy ratings or reported on buy ratings. Those of course were just the sites that report on information. The actual “research” agency that issued the rating certainly has a lot of “free gifts” and other investor “tools” available on their site. They even have an online brokerage (convenient).

Bottomline – always ask yourself how a company makes money. Are they making money off advertising (not when all the advertisements are their own), their “research” (not when they “give it away”, or their “tools” (but it says its free)? If you want to play in the stock market, make sure you do your homework and don’t rely on free research as your sole reason for buying or selling.

Did I end up buying AMAG? Yes. Yes I did. I didn’t buy it on Nov. 2 though. I bought it after the earnings came out and the price was cut by 23%. For me and my risk preferences this was where I felt comfortable investing in the stock price. My market goals are going to be very different than anyone else, so it is certainly not a recommendation to do anything. :)

HB 1124 update

I just received an email with the list of Bills that were “Truly agreed” and passed both houses. These would be passed on to the Governor for final passage into law. HB 1124 was not one of the Bills listed, however a different Bill that was much of the same intent has the House’s original was included.

Bottomline, when the Senate included an amendment to exclude the ability of a manufacturer to sell vehicles directly to consumers even if they didn’t have franchise in the State, the Bill went back to the House and luckily the House didn’t agree with that additional language and didn’t pass it.

The Bill that did pass was to allow the sale of motocycles on Sundays. HB1735

I read the Bill and did not see any mention of the section 407.826 as was included by the Senate.

If you sent any correspondence to your representatives with regard to this Bill, then I hope the outcome you were wanting was reached.

 

Stifling Competition – MO HB 1124 w/ Senate Amendments

Today I read about the MO HB 1124 that had passed the Missouri House & moved into the Senate only to be amended with anti-competitive language. The Senate addition included in section 407.826 part 3 & 4 would exclude a manufacturer from selling vehicles directly to consumers.

The original Statute was enacted to protect Franchisee’s from their own Franchisors. The original idea being that a manufacturer shouldn’t be able to give a franchisee territory & then compete against them in the future after the Franchisee is fully invested in their opportunity.

Fair Enough right.

Well what if a manufacturer did not have any Franchisees in the state? It shouldn’t apply right – as there aren’t any Franchisee’s to compete against and no Franchisee to protect.

Apparently the Missouri Senate disagreed with logic as they included language that essentially blocks a manufacturer from selling in the state w/o using a franchise structure. They are trying to force a business model on all future vehicle manufacturers. It is equivalent to saying anyone on the internet shouldn’t be allowed to sell to consumers directly if there are competitors that use a different business model.

The existing vehicle manufacturers made a business decision to sell in the Franchise manner. They didn’t have to make this decision, but they did. Another comparison would be the computer industry. What if Dell or Gateway or Apple weren’t allowed to sell online simply because HP decided to use mass-distributors to sell its product. What if they were all forced to create their own brick-and-mortar locations or strike contracts with existing distributors? Would that be better for the consumer?

The amendment in HB 1124 is essentially an attempt to reduce competition in the vehicle market by creating additional barriers to entry that currently don’t exist & shouldn’t exist. This is a shot at Tesla specifically as they are one of the few new vehicle manufacturers to take on the existing players.

Here is language I just sent to my Missouri House Reps since the Bill will probably head back there. Feel free to copy/paste it into an email to them as well.  (You can find your Missouri Legislature representatives here)

Mr. ________,
I just read that HB 1124 had passed the House & moved to the Senate at which point an amendment was added that would expand the scope of the existing law beyond its original intent.
Specifically portion of the Bill under 407.826 part 3 & 4 which relate to the ability of a company with a different business model than the existing competitors to sell directly to consumers.

As the original intent of the Statute was to protect the franchisee from its own franchisor, there is no reason why a manufacturer without a franchisee should be prohibited from making its own business decisions on how to sell its product.

I don’t believe this amendment is in the interest of the MO consumers as it would unnecessarily create additional layers of cost for the consumer.

To use an example in a different industry, it would be like saying Amazon can’t sell directly to consumers and would have to set up book stores for no other reason than the existing book stores want to force their business model on an innovative competitor.

As I believe this Bill will come back to the House with the mentioned amendment, I would hope you take my comments into consideration when discussing/considering further action on the Bill.

Thanks for your time,

 

 

 

eSurance Campaign – update

Back in February I wrote a post about the eSurance Campaign & discussed the pass/fail of a couple of items. Now that a couple of months have passed I’ve still been occasionally checking the Twitter activity of the eSurance twitter account to see how they capitalized on the whole Super Bowl commercial which they claim to have spent about $3.5m on (remember, they spent $3.5m on the commercial & then gave away $1.5m so their total cost was still $5m).

I had written that I suspected a lot of the followers were either fake accounts or accounts who’s sole purpose was to enter into the contest. I know for a fact at least 1 account was created just to enter (I created it & have since deleted it as I don’t need it).

As of today, their current follower number for that same Twitter account is at 134,000.

What was it before the announcement on Jimmy Kimmel you ask? About 261,000.

So they lost a net 127,000 Twitter followers in the last 2 months.  Ouch. That’s 1/2 of the estimated 250,000 new followers they gained from the campaign.

I’d wager that if a person signed up for eSurance through the campaign & had started following them during the campaign, they’d be a lot less likely to unfollow than any of the other new followers. As they now have a business relationship with the company they might be interested in the tweets coming from the account.

I had also done some rudimentary calculations to show a potential number of new users/subscribers. I had calculated 2,500 new users. So if we are still assuming 2,500 new users then the adoption rate would now be (2,500 / 125,000) which would be a 2% conversion rate instead of the 1% I had assumed before. I highly doubt it is that high, but as far as I know its higher.

At the end of the day only eSurance has to decide if it was worth the $5m & only they know the number of new users they obtained from the campaign.

I do know I wouldn’t pay $5m to gain 125,000 twitter followers. But I also wouldn’t just spew out ad tweets on the corporate account without actually interacting with the followers either.

Random update.

Budweiser Puppy had 12,000 in Feb. & is now at about 11,000. They haven’t tweeted since Feb. 6.  What was the point of this again? Maybe they will utilize the account again someday. At least they interacted a little bit.

Knoda User Successfully Predicts eSuranceSave30 Winner

Knoda, an app for making predictions, had one of its users correctly predict the winner of the #eSuranceSave30 contest. For a contest that produced millions of entries & several hundred thousand followers for the insurance giant, being able to pick the 1 winner is a feat no short of astounding.

The predictor stated  “I got extra points for having a successful prediction vs. it being wrong. I’ve been a Knoda user since I first heard Kyle on 96.5 the Buzz and they said we could go out & register our names on their website even if we didn’t have an iPhone. So I did, then it occurred to me I could download their app on my iPad & I immediately started using it. I haven’t done too badly either. This prediction was by far the most voted on of all of my predictions though. There were 12 “Disagrees” by the time voting closed & I was the only “agree”. I don’t know if I get extra points for having an accurate prediction with a lot of disagrees, but we will see once I am able to confirm the results (I think I put in a later time so I could make sure the stories would hit Google before I had to return the answer).” Note: – the answer – yes, extra points were gotten due to the overwhelming opposite votes.

A Knoda follower early on, the predictor has been made several predictions so far. He’s been following Kyle and the Knoda team for quite some time as they have gone through their start-up and seed funding process. “I met Kyle for the first time at a StartUp Weekend, I had followed him on Twitter for quite a while & then met in person there. Oddly enough it was at that StartUp Weekend that his team presented an app very similar to Knoda. Bold Predictions I believe it was called. I’m glad they were able to turn it into something & really gain traction.”

As the Knoda company gains steam (it already has professional sports players using the app) these types of predictions will be more common & news outlets could start tapping the predictions as leads for their own stories, another source if you will.

If you’d like to find out more about Knoda, simply go to their website: www.knoda.com or follow them on Twitter @KNODAFuture

 

The eSurance Campaign – Pass or Fail

The eSurance company launched a marketing campaign around the Super Bowl. They purchased the first commercial after the end, and reported (part of the commercial) that in doing so it saved them 30% of the cost of a commercial during the game. They then said they would give that savings to one lucky person. They would chose that person at random based on Tweets using the hashtag #EsuranceSave30.

Tweets could be sent until 1:00 am PST Tuesday morning at which point the contest ends & a winner would be chosen from the qualified entries. Some reports had the number of tweets using this hashtag after that commercial in the 1.2 million range. That would not surprise me at all given I put a column in my Tweetdeck for the hashtag & the thing ran non-stop (this was Monday – the day after the commercial). I searched for the total number, but haven’t seen a updated piece yet.

This brings up a couple questions in my head:

  1. Isn’t the goal of a campaign to ultimately bring in new customers?
    • If so, what is the cost of acquisition for this campaign?
    • What is the cost of acquisition in other methods & compared to this campaign?
    • Bottomline – does it make sense to even use the super bowl or could other means produce same/better results.
  2. How does the brand engage its new found followers?
  3. What does the brand do to continue the momentum? – keep the ball rolling

 

I was also curious as to what the impact of the contest would be on their twitter handle. Since the entire contest was predicated on using Twitter, this isn’t too difficult to watch.

 

1. What is the Acquisition Cost?

eSurance said they were going to give away $1.5m which represented the 30% savings from having a commercial during the Super Bowl. This puts an ad during the Super Bowl at about $5m.

I unfortunately did not see what their total number of followers was before their ad, but as of 9:00 am CST on Monday they had 107,000 followers (an article had them at 8,900 before the commercial).  (I think the game was done around 9pm?)

I followed the number of users & tracked the rate of new followers. It went on at a pretty good clip through the morning with each hour gaining about 10k – 20k with the earlier hours closer to the top of that range & the later hours at the bottom. By 12:00 pm (noon) CST they had 190,000. Things slowed dramatically after that & by 3:30 pm they had about 220,000. As of 9:00 am Tuesday morning (after the contest had ended) they had about 259,000 followers. So for argument purposes lets say they gained 250,000 followers from the campaign. (The count was about 261,000 by 10:30 am – & they are going to announce the winner Live on Jimmy Kimmel on Wed, so the campaign could produce more.)

So, $5m (remember, they paid for the ad & the are giving the rest away) / 250,000 = $20 per new follower

I’ve never bought followers, so I don’t know if that is a good $ or not. For comparison though, the Budweiser Puppy started its Twitter profile on Friday before the Super Bowl & was actively tweeting to random people over the weekend. They only had about 12,000 on Tuesday morning. Their’s was “free” in that the commercial didn’t send people to Twitter that I am aware of. So for the cost of having someone staffed on the Twitter handle, they could build on that base & if done correctly they could get there.

If we want to figure out the Cost of Acquisition we have to start making some assumptions at this point. Really a table would work best here, but for our purposes I’ll just use some easy numbers.

How many of the new followers would sign up? How many of the people Tweeting would sign up (many did not follow, just Tweeted)? How many doing neither would sign up from the campaign?

I think a 1% conversion rate would be quite generous & thus easily capture all potential new users. That puts the new users around 2,500.

That means it cost eSurance about $2,000 for each new customer.

I don’t know if that is a good acquisition cost or not but we can do some other calculations to put it in context.

Based on a report from justice.org the insurance business is lucrative with Allstate getting about 45% of premiums as profit. Since eSurance is owned by Allstate, lets suppose they implemented their same claims strategy, but since eSurance is a internet lower cost strategy lets put their margin closer to the 10% range. (A report from blogs.rhsmith.umd.edu put GEICO in the 5-6% margin range). In my view a 10% profit margin would be a good average for any company.

So for a new customer paying $100 / month, eSurance would see (1,200 * 10%) $120 in profit. This means they would have to keep that customer for about 16.7 years just to break even. Ouch!

For giggles, lets pretend I am way off base (by about 100%). So they have 2,500 new customers and each pays $200/month and the margin is closer to 25%. That would be $600/yr in profit & it would take over 3 years for the company to make money. Oddly enough, in that RHSmith article it stated that insurance companies typically would need to retain customers 3-4 years for those accounts to become profitable.

So is $2,000 / new customer a good acquisition cost for eSurance? I’d guess not. Given the math that had to take place to reach the 3-4 year barrier I just don’t buy it. – FAIL
(obviously I don’t have access to eSurance’s internal numbers so everything is guessing)
(I’m also not in the insurance business so don’t know what the cost of acquisition through other methods is)

So does it make sense for eSurance to have launched this campaign? Only if their cost of acquisition in other methods is higher than what comes out as a direct result of this campaign. IE – money could have been spent elsewhere to produce better results.

 

2. Engagement – the what/when/how

There was sporatic engagement from the Twitter account to people who were using the hashtag. There were retweets, some replies, etc. When I logged in on Monday they were following about 285 other users. A lot of those users were verified accounts, so they weren’t really following normal users. Some of the interactions also seemed forced. The rules said they would DM the winner, so by default they would have to follow that person. They didn’t follow anyone new until the morning of Tuesday. This made it fairly easy to figure out a short list of people who could have one. As I am writing this at 5:00pm CST Tuesday, they still have only followed about 297 people. Most of those are verified accounts which I would suspect didn’t really enter. They followed about 10 or so accounts on Tuesday morning & several of those accounts interacted with each other asking each other if they were the winners. Obviously those that were interacting didn’t get a notification – just a follow. There was one lucky user though, which through a pretty quick search of activity could be discovered. I posted my prediction on who it was on the app Knoda, so we will see if I am correct. (The user I think won only tweeted the hashtag once, vs. thousands of times for the other 4 who were followed early, which is why I think his was picked – it provides a better narrative for the story “I only tweeted the hashtag once…”).

Is getting a reply or follow from eSurance a big deal? Eh. might make your day, & you’d retweet it out to your friends, but not exactly earth shattering. That to me isn’t engagement. I’ve seen a lot of better engagement from brands who engage in conversations with people. Some of these conversations are “gasp” not related to their brand at all, but just conversations the people they follow are having. This of course would require them to actually follow their prospective customers.

Potential:

What if eSurance had followed every one of their followers in the wee hours of Tuesday morning? Wouldn’t everyone who was followed by eSurance then begin an entirely new conversation? Sure a lot of them would say “what? let me see if they just followed everyone” and that would be it.  What having millions of tweets but only a couple hundred thousand followers tells us is that most of the people using the hashtag didn’t really know the rules & weren’t actively looking for reasons to not be the winner. If they had followed all their followers, the conversation of who the winner was could have been extended another day & raised the potential for new followers / users. (Although Super Bowl was still trending on Tuesday, eSuranceSave30 was not. But some people were still tweeting it as if the contest hadn’t ended.)

What if eSurance built on that initial follower base & started truly engaging their potential customer pool? Would you be more inclined to at least look at the eSurance site the next time you were looking for insurance if they were following you & engaging in conversations over the next year or two or three? Instead of using Twitter as another broadcast medium (just shout your message at people), maybe it could be used as an engagement medium?

Obviously I don’t have any numbers to back up that potential I explained, but I will tell you one of my experiences:

I was conversing with a friend who was taking her first trip to Vegas (2011 or so). She was staying at The Venetian (@VenetianVegas). She started following their acct & they followed back. She was tweeting that this was her first trip & was staying there. They replied with a “Welcome, glad you are staying with us…” type of thing. While she was there, she noticed that her sink wasn’t working properly, but she had to grab a shuttle before she could tell the front desk. She tweeted out that she loved the room, but her sink was broken but had to grab the shuttle & couldn’t tell the front desk. (she @’d the Venetian acct in the tweet). I replied to her (taking out the @) that they knew it was broken now, if of course they were following their acct & it would be interesting to see if they replied. They did reply to her & said not only did they see the tweet, but the sink was fixed & hope she enjoys the convention.

How often do I go to Vegas? Once or so every year or two. Its been 3 years & I still remember that engagement. Will it get me to stay at the Venetian? Their name is always at the top of my list when I start looking for rooms.

Scrolling through their tweets today I see a lot of “glad you stayed with us”, “hope to see you again,” etc.

 

So how are they engaging their new followers? They really aren’t. The fluff of “stay tuned on Wed for the live announcement on Jimmy Kimel” reply doesn’t really engage a follower. – FAIL

 

3. What does the brand do to keep the momentum?

They tried to push out their announcement for the Jimmy Kimmel show, but this could have been done better. As mentioned above, if they had followed everyone that followed them (and even some of the people who used the hastag but didn’t follow them) then tweeted out “Hey, remember, we can’t Direct Message you if you are not following us”. This could have pulled in more followers (with whom they could interact), as well as keep the buzz going about who the winner could be. Everyone would be waiting until the 1:00 pm EST notification deadline & then tweeted again after it saying they didn’t get a DM.

As I mentioned above, the Super Bowl is still a trending topic, but #eSuranceSave30 is not. Keeping the conversation going could have pulled them into another day of discussions. Would that result in more end users? Maybe, maybe not, but it wouldn’t have been a difficult implementation nor would it have been an additional investment.

I am sure there are plenty of articles mentioning the eSurance campaign so that helps somewhat here – they were original enough to get additional media play.

What will they do after the Jimmy show? No idea but given the performance so far I’m going to give it a pre-emptive – FAIL

NOTE: If I am incorrect on the Jimmy show / after stuff I’ll update this post.

 

Bottomline:

My unprofessional assessment of the campaign:

1. Fail
2. Fail
3. pre-emptive Fail

I’d guess they could have gotten more end users through a different medium or with a strategy that incorporated some of the ideas I mentioned. $5m + (remember they had to produce the commercial too) probably could have been put to better use.

 

Disclaimers:

Am I a marketing professional? No, I’m just a guy with a computer.
Do I know what I am talking about? That’s really subjective. If you agree with some of my ideas & conclusions, then yes, if you disagree then no. Take the information for the cost you paid to obtain it.
Do I have any reason to put Pass/Fail on anything? Not really.
Am I a clown on the weekends? No
Do I have eSurance? No
Will I? probably not – pretty happy not changing things
Do I run a social strategy or anything of the sorts? Nope
What about Facebook? Yeah, I didn’t do any searches there to find out if some people didn’t know you had to be on the Twitter.
Did you cover all bases? Absolutely not. Some assumptions were made as mentioned above, but the searches I did to find information didn’t yield as much as I’d hoped.